Common questions
Kempsey Cinema

Updated 23 June 2017

How long has Council been investigating this project?

Council first applied to the Federal Government National Stronger Regions Fund in late 2014 for assistance to construct a cinema. A community survey and further investigation into the financial model was then carried out, with a successful second round funding allocation announced in December 2015.

Were any other sites considered?

As part of the project research Council conducted inspections and investigations into a number of sites, including the Bandbox Theatre, the East West Plaza and the Barsby’s building. No other site delivered the combination of essential criteria such as ability to boost foot traffic and potential spending to existing CBD businesses and the funding contribution of a private partner.

Why does the project have to involve Council funds?

The reason Kempsey doesn’t currently have a cinema is that the size of our base population and high start-up costs of building a dedicated cinema complex doesn’t make the operation viable as a 100% privately funded business.

The economic and social boost provided by a cinema in the CBD of Kempsey are key factors in why this project fits into the vision of a vibrant and sustainable future for Kempsey, and why Council was able to attract $2m in Federal Government support.

Council’s view is that supporting a cinema development is no different than Council supporting a swimming pool, sports fields or any other facility that is valued and desired by the community. Historically, revenues generated from a number of Council (community) owned assets, including Kempsey Regional Saleyards and Kempsey Airport, do not currently cover their operating costs, however Council continues to maintain these assets because of the ongoing benefits they provide not just too particular industry segments, but to the broader community through social and economic flow-ons.

Isn’t four screens too many, wouldn’t we only need two in Kempsey?

Advice and modelling from industry experts and the Cinema operator indicates that a variety of theatres with smaller seating arrangements allows for a greater operational flexibility. The footprint space and cost to operate and fit-out four theatres is not significantly greater. But with a combination of different theatre sizes a variety of movies can be shown for more days across multiple timeslots allowing more people to attend, therefore making the business more viable.

Can the venue be used for anything else?

Majestic Cinemas have advised that in other locations theatres, that already contain tiered seating and high quality audio equipment, are being used for a variety of purposes including charity screenings, comedian performances and corporate functions. As a project partner Council has negotiated use of the facility up to 10 times a year to hold community and organisational events.

 Why haven’t Council encouraged shops like Kmart or Best & Less to Kempsey?

Council’s economic development commitment supports and encourages investment from a range of business ventures but unfortunately the size of our base population and the spending profile of our community do not reach the required threshold to attract many of the major retail companies.

Is Council bearing all the risk with the private companies involved having nothing to lose?

The business paper presented to Council on 25 May details the full financial agreement, business case and legality of the proposed public private partnership.

An excerpt from that report clarifies:

Project Development Agreement

  • Gowings, as the owner of the property, agrees to contribute funds for the construction of the cinema space and to construct the facility in accordance with the terms of the agreement
  • Gowings agrees to carry out and assume full responsibility and risks for the construction of the project
  • Gowings agrees to lease the premises to Majestic
  • Majestic, as the cinema operator, agrees to contribute funding towards the purchase of the cinema operating equipment
  • Majestic agrees to become the manager of the project and lessee of the premises for 10 years with a 10 year option
  • Council agrees to provide an interest free loan for the construction of the project
  • Council agrees to pay Majestic a management fee
  • Council bears the costs of the development application, and Majestic agrees to repay the interest free loan to Council through a profit sharing arrangement in respect of the operation and management of the project.

Agreement to Lease

  • The Agreement to Lease is between Gowing Bros Ltd as Landlord, Majestic Cinemas Pty Limited as Tenant and Kempsey Shire Council as Guarantor regarding provision of funding. This legal document commits the parties to undertake mutually agreed works and obligations, binds the parties to a lease commencement date, and includes provisions for disputes, indemnities, default, liability, costs, guarantee and indemnity.

Lease

  • The lease is between Gowing Bros Ltd as Landlord and Majestic Cinemas Pty Limited as tenant. Council is a signatory to the lease lease as guarantor of Majestic Cinema’s obligations.

Is Council liable if the cinema makes a loss?

The cinema project proposes a profit/loss share arrangement and that comes with business risks that have been modelled on a number of scenarios. 

Profits and losses would be shared with Council having a 75% right to profit and responsibility for losses. Majestic gains the remaining 25% profit or wears 25% of losses.

The scenarios modelled range from 25% under a base case to 25% over a base case. In the event of the worst case scenario the costs to Council would be $185,000 per annum. Under the base case the cost to Council is $35,000 per year on average. Under the best case scenario the profit to Council is $115,000 per year. The modelling indicates that over time the cinema operations will become increasingly profitable

The success of the project and potential profit ultimately relates directly to the support of the community through ticket sales.

How was the base case scenario for the cinema operations calculated?

The estimated admission figures have been calculated through a range of factors including population size and industry trends. The base case figure of 95,843 annual admissions is considered conservative when compared to the community survey conducted in late 2014. As part of the survey, our community was asked how often they would attend the cinema once it opened in Kempsey. Based on survey responses, the annual admission figure could be as high as 355,200. Even if that figure is halved, the community's support for the cinema could far exceed the estimated base case attendance.

Did Council tender for a cinema operator?

Council conducted an Expression of Interest process as part of the tender (TQE16/9) through May 2016. Advertisements ran in local media, the Sydney Morning Herald and Financial Review. Council also worked with the National Association of Cinema Operators to advertise the EOI in the e-newsletter to members in May 2016.

The tender was reported to Council on the 9 August 2016, and as is common practice with tender documentation due to the commercial sensitivities the item was considered as confidential. Two tenders to operate the cinema were received for consideration of Council with only Majestic complying with all requirements.

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